Royal DSM Weighs Limited Disposals After Third Point Action

Dutch chemicals and food ingredients company Royal DSM NV, under pressure from activist investor Third Point LLC to break itself up, said on Tuesday, Nov. 4, that it is contemplating the sale of three units but has no plans to go further for now.

The company is considering shedding its caprolactam and acrylonitrile operations within its polymer intermediates unit, which makes raw materials for the production of plastics and synthetic fibers, as well as its composite resins business. The operations have combined annual sales of more than €1.5 billion ($1.87 billion), whereas group sales last year were €9.6 billion. DSM wants to focus on nutrition and on performance materials, which serves sectors including the automotive and construction industries. Third Point wants it to sell both the performance materials and polymer intermediates unit.

"All three businesses do not fit with the resilient portfolio that DSM is building," DSM CEO Feike Sijbesma told journalists in a conference call after the company released third-quarter earnings.

He added: "We want to reduce our cyclicality and those three businesses are all less performing or have a cyclical character and do not fit in the portfolio of DSM," he said, noting that portfolio management "was always and remains a very important part of our strategy."

The news comes a year after DSM said it would restructure corporate resins.

One analyst noted that while the market will welcome the increased scope, it may "wonder why management doesn't divest all materials businesses."

Sijbesma insisted on Tuesday that the company remains committed to its nutrition and performance materials businesses, where it plans to harvest synergies from past acquisitions instead of bulking up further.

While fending off activists, DSM has also been at the center of speculation about a bid from German chemicals maker Evonik Industries AG to create a combined entity with about €22 billion in sales.

DSM shares were up 1.6% in Amsterdam to €49.78 by mid-afternoon, having pared earlier gains. That puts its market capitalization of around €9.05 billion.

On Tuesday DSM posted third-quarter Ebitda of €315 million, down 8% from a year ago and roughly in line with expectations. Quarterly sales rose 1% to €2.32 billion.

Polymer intermediates was the worst-performing unit, with Ebitda 18% lower than last year, while earnings at performance raterials increased 10%.

As for the year ahead, DSM confirmed it could meet market expectations.